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Hewison Insights

A hitch hiker’s guide to investing during a recession

Andrew Hewison
Managing Director
4 Jul 2023

Let’s assume a recession is imminent.  

Recessions are a result of negative economic growth. They bring higher unemployment and therefore less spending. They typically also occur near the top of an interest rate cycle, so debt becomes more expensive too. 

What does this mean for your investment portfolio? The answer is not always what you might expect. Of course, it depends what assets your portfolio is invested in. 

Australia’s last true recession was in 1990/91. The Australian share market had grown by 22% in 88/89, then returned -22% during the 1990 recession. However, it recovered in 1991 by 29%! 

When it comes to market returns, many financial ‘pundits’ love the catch cry “lower for longer”. That essentially means that we should not expect our portfolio returns to be anything above, say, 4% per annum for an extended period. Personally, I pay little attention to such comments. 


Their investment time horizon is very different to that of a long-term investor. They work in months, not years. 

Lesson 1 – Don’t Panic 

You can see by the Australian share market returns during the previous recessionary period that they can be volatile, meaning that they can fall fast and rise quickly.  

Like a thunderstorm, go inside, batten down the hatches and wait for the storm to pass. The sun always comes out again. 

Investing is no different. Events that create market volatility will come and go and we don’t always know when. But the ‘sun’ always rises again, and sooner than we expect. 

Lesson 2 – Don’t sell ‘the farm’ 

Again, referencing the ‘91’ recession, considering the year prior (89) and the year after (91), the total index return was +20%. Getting the timing ‘right’ would have been near impossible and not a strategy I would recommend. 

Lesson 3 – The world has moved on from ‘stocks and bonds’.   

As a Hewison client, you would appreciate that this has never been our philosophy. Led by our investment committee, we understand the intricacies of a diversified approach. For example: 

  • Some defensive equities can perform very well during recessions. 
  • Rising interest rates aren’t good for mortgage holders, but great for fixed income returns, particularly if you are acting as the lender via secured first mortgages. 
  • Private equity can reduce portfolio volatility during uncertain economic events. 
  • Unlisted property opportunities are available across many sub-categories, such as industrial, commercial, agricultural, and retail (both discretionary and non-discretionary). 

The reality is, sophisticated investing is not something that can be done without professional advice and management, and as your Financial Advisers we take this position of guidance and leadership very seriously.  

Lesson 4 – Understand what you are invested in 

While the Global Financial Crisis (GFC) did not cause a recession in Australia, it sent many investment markets plummeting and some companies did not survive. That was mainly in part because their business structures were complex and hinged on high debt levels. 

Warren Buffet once said, “It’s only when the tide goes out that you see who’s been swimming naked”. 

The lesson here is to only invest in things that are easy to understand and not be caught out when “the tide goes out”. 

If you are not 100% sure what you invested in, please ask your Adviser to explain your investments.  

Lesson 5 – Control and flexibility is non-negotiable  

Whatever the conditions are, you need to be in the driver’s seat. 

As you know, where possible, we prefer direct investment ownership to ensure you are not at the mercy of others’ investment decisions.   

Simply speaking, if the time comes to make changes, your portfolio needs to be structured so that you can take advantage of the opportunities. Typically, we call this ‘re-balancing’. 

While not all investments are always liquid (most unlisted investments are less liquid, but also less volatile), your Adviser will have structured your portfolio to include the necessary capability to be pro-active at all times. 

Lesson 6 – Cashflow is King 

It’s also rather predictable. 

Recessions cause market volatility, but unless a business gets itself into real trouble, it will typically continue paying dividends, its interest payments, and its rent. This essentially means that your portfolio will continue to generate predictable and reliable cash flow to ensure your income needs are met, or you have cash to re-invest into buying opportunities.  

In closing, market corrections and volatility, whether they are caused by a recession or not, are a reality of investing. They are uncomfortable to live through, but they do not last long. Remember, 80% of the time markets rise, you just have to ‘live’ through the other 20%. 

As a Hewison client, your portfolio has been designed to weather the storm, if and when it comes.